Category Archives: Politics

Would five EPA commissioners be better than one EPA administrator?

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Michael Giberson

Steven Hayward makes the unremarkable observation that the EPA is politicized followed by the somewhat surprising recommendation to fix things by adding more political appointees at the top! He recommends a five-person commission structure within which no more than three are of the same party affiliation, similar to the arrangement governing the Federal Energy Regulatory Commission, the Federal Trade Commission, the Securities and Exchange Commission, and several other regulatory agencies.

Hayward explains, “The EPA’s single-administrator model … is based on what amounts to a conceit that some policy matters are beyond politics or meaningful controversy. This is the apotheosis of the Progressive Era ideal, or rather myth, of enlightened administration by neutral experts. It is also a tactic to deny that what are deeply political administrative decisions are in fact political.” As Hayward points out, a virtue of a multi-member commission over a single administrator is the opportunity for diverse points of view to be represented at the top and for minority views to get public airing.

American biofuel policy increases hardship on the Guatemalan poor, and you help every time you buy gasoline

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Michael Giberson

Next time you see one of those “This product may contain up to 10 percent ethanol” stickers on a gas pump, ask yourself why federal government biofuel policies are forcing you to help increase hunger and hardship among poor Guatemalans.

Sure, politicians in their comfortable offices in Washington, DC, didn’t intend to help starve the world’s poor. But biofuel policy is requiring conversion of food to fuel and contributing to higher corn prices, so having that effect.

Looking at you, Iowa Congressional delegation.

Which states have price gouging laws?

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Michael Giberson

A graphic illustrating states with price gouging laws (blue) and states without them (gold). For a list of the states with citations and related notes, see my earlier “List of States With Anti-Price Gouging Laws.”

STATES_W_APGL_2012_NOV

 

So far as I know, the only serious attempt to explain why some states do have price gouging laws and others do not is Cale Wren Davis’s thesis,  “An analysis of the enactment of anti-price gouging laws,” Montana State University, (2008).

Davis makes some progress, but there is still a lot of work to be done on the political economy of price gouging.

New York state also moves quickly on price gougers

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Michael Giberson

The New York Attorney General’s office takes action against 13 gas station owners in the state for price gouging. Like last week’s prompt response by New Jersey, this is unusually quick work for price gouging cases.

A few quotes from the AG’s press release:

NEW YORK – Attorney General Eric T. Schneiderman today announcedthat his office has notified 13 gas station operators of his intent to commence enforcement proceedings against them for violations of the New York State Price Gouging statute. These are the first of what is expected to be a series of actions taken in a wide-ranging investigation launched in the wake of Hurricane Sandy for price gouging after receiving hundreds of complaints from consumers across the state of New York.

“Our office has zero tolerance for price gouging and we are taking action to send a message that ripping off New Yorkers is against the law,” said Attorney General Schneiderman. “Today’s action is the first in a series of steps my office will take as we continue to actively investigate the hundreds of complaints we’ve received from consumers of businesses preying on victims of Hurricane Sandy. We will do everything we can to stop unscrupulous individuals from taking advantage of New Yorkers trying to rebuild their lives.”

Included is some explanation of price gouging law details:

New York’s price gouging law does not specifically define what constitutes an “unconscionably excessive price.” However, the statute provides that a price may be “unconscionably excessive” if: the amount charged represents a gross disparity between the price of the goods or services which were the subject of the transaction and their value measured by the price at which such consumer goods or services were sold or offered for sale by the defendant in the usual course of business immediately prior to the onset of the abnormal disruption of the market.

In other words, a “before-and-after” price analysis can be used as evidence of price gouging. Evidence that a price is unconscionably excessive may also include proof that “the amount charged grossly exceeded the price at which the same or similar goods or services were readily obtainable by other consumers in the trade area.” However, a merchant may counter with evidence that additional costs not within its control were imposed for the goods or services. Notably, the price gouging law does not prohibit any disparity between the price charged before and after there is an abnormal disruption of the market. Rather, the statute prohibits a “gross disparity,” when it is clear that a business is taking unfair advantage of consumers by charging unconscionably excessive prices, and increasing its profits, under severe circumstances that call for shared sacrifices.

Attorney General Schneiderman added, “These thirteen retailers stand out from others in the high prices they have charged and in the size of their price increases.”

Note the phrase “additional costs not within its control.” If a store manager takes actions to increase cost that are within the managers control: paying overtime to an employee, or undertaking extraordinary efforts to stock up on goods that post-emergency consumers might use, it may find that the state does not consider such costs as legitimate grounds for charging higher prices. (Case in point: People v. Chazy Hardware. Expense and risks involved in effort to procure generators after an ice storm not grounds for charging higher price.)

Two gasoline price gouging examples listed in the press release:

Attorney General Schneiderman noted as an example that, in the case of the Mobil station located at 40-40 Crescent Street in Long Island City, the price per gallon was posted at the roadside as $3.89. The line for the station was three city blocks long. When the consumer got to the pump, the price sign noted a cash price of $4.89 for regular gas and a credit card price of $4.99. The consumer paid the $4.99 using his credit card because he was low on cash and needed the gas.

In another example, at the Express mart station located at 1000 Rte 9 in Lindenhurst, a consumer has reported that there were no road signs indicating the gas prices, only a plywood sign next to the road stating they were only accepting cash for gasoline purchases. There was a long line at the gas station. When the consumer pulled up to the pump he was told the gas price was $4.99 a gallon. He paid the $4.99 because he needed the gas.

The 13 gasoline stations are branded: Shell (3), Mobile (4), USA Petroleum (2), Babylon Gas/Express Market, Sonomax, Delta, and Getty. Without looking for any evidence, I’ll hazard the guess that the seven “big name” stations are all franchisees and not vertically integrated companies with refineries and distribution operations and the other six are small local chains or franchisees of regional brands. Compare to the NJ seven listed here.

Headline: “Gov. Christie expects property taxes to rise in Sandy-ravaged areas”

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Michael Giberson

At least the Governor understands that emergencies can drive costs up. We’ll see if this understanding goes beyond the expenditure of public funds to include excess costs faced by small business in New Jersey once the state gets around to prosecuting price gouging cases in earnest. Christie tax story here.

One example of the higher cost of government due to the storm: in at least four cases local government officials–mayor, police chief, sheriff, school superintendent–used local-government portable generators to power their homes or small businesses during power outages.

The one-sided debate over price gouging

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Michael Giberson

John Carney proposes declaration of free-trade zones for gasoline in shortage-afflicted areas. Prices could stay regulated elsewhere, but consumers and merchants would gain the option to trade at higher prices within the zones. Great idea, but there is zero chance that very visible politicians will want to be upstaged by an invisible hand, especially right before an election.

Carney, too, notices that price gouging laws are taking a beating on the internet. Critics of the laws are everywhere, and he wonders where the thoughtful defenders are?

One title that sounds like a candidate for a thoughtful defense is David Futrelle’s ”Post-Sandy Price Gouging: Economically Sound, Ethically Dubious.” Unfortunately, there is no defense; he never explains just what about gouging is ethically suspect.

In the wake of a calamity like Superstorm Sandy, is it fair for businesses — from corner bodegas to gas stations to car services — to jack up their prices, earning windfall profits off the desperation of their customers? There aren’t a lot of people who would answer yes to that question; in the midst of the devastation of Sandy, this sort of price gouging seems not only deeply unethical but almost, you might say, treasonous. One disgruntled consumer told CNBC.com’s John Carney he considered it a kind of “reverse looting.”

So it was hardly surprising to hear New Jersey Governor Chris Christie issue a blunt warning to merchants that price gouging is illegal and brings harsh penalties. “During emergencies, New Jerseyans should look out for each other,” Christie said in a statement, “not seek to take advantage of each other.” New York Attorney General Eric T. Schneiderman issued a similarly stern warning.

Futrelle then observes that one strange group of people who don’t object to price gouging: economists. Economists, conservatives, and libertarians have come out swinging against the price controls, he says, “and so we’ve seen a very strange debate take place in the media in recent days.”

But, as Carney noticed, there is no debate going on. A lot of critics are claiming that, in one way or another, price gouging laws are hurting the people they are supposed to be helping. And on the other side of the issue we get the suggestion that price gouging is “deeply unethical” and “almost treasonous.” Not exactly a thoughtful rejoinder. (I think for many defenders, they feel so deeply that they are right that they haven’t felt the need to justify the position.)

Futrelle wraps up:

Oh, the economics of it makes perfect sense. It’s just that right now, with so many people suffering, the cold logic of capitalism seems callous and morally suspect, an affront to basic notions of fairness. Price gouging might, at least in theory, help shrink lines and reduce shortages. But I think most people would rather wait in line than have someone make a windfall profit off their desperation.

Maybe Futrelle is right. Maybe people would rather stand in line for hours to get a little gasoline than pay more cash for gas. But rather than pontificate, we could just give people a choice. Why don’t we just set up some of Carney’s gasoline free-trade zones?

Here are the two sides to the debate: Futrelle’s pro-”notions of fairness” side that uses government’s time and money to prevent people from having a choice, and Carney’s pro-choice side that would let people decide for themselves how they spend their own time and money.

Carney’s side of the debate is well represented online. Like Carney, I’m looking for a thoughtful explanation of Futrelle’s pro-government involvement, anti-choice point of view.

[HT to Matt Zwolinski for drawing my attention to Futrelle's article.]

So much oil that we don’t need infrastructure to develop it?

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Michael Giberson

At InsideClimate News Elizabeth Douglass has a long, sprawling article tying together projections of U.S. oil production growth sufficient to turn the U.S. into an oil exporting nation and the political opposition to the Keystone XL pipeline. But the link between resource optimism and infrastructure obstructionism is a bit of a non sequitur. We ought to be careful about jumping from evidence of commercial success to justifications for more political control over commerce.

In July, the Manhattan Institute’s Mark Mills produced a report suggesting the presence of sufficient hydrocarbon resources within North America to more than meet North American needs and allow exports too. The economic potential of such development should lead us to adopt supportive policies, he said. Mills report notes similar projections coming from a variety of industry analysts and government energy agencies. Douglass’s article quotes Mills saying, ”We’re about to have a gusher of oil.”

The article then describes how the lack of pipeline infrastructure has hampered oil production in North Dakota, and even more so in Alberta, such that oil at these locations trades at a significant discount to world oil prices. The lack of pipeline infrastructure leads producers to resort to more costly transportation methods – barges, trains and trucks – to get oil out. The higher transport costs cuts into the price paid to producers.

So far, so good. The tight oil boom has surprised the industry as much as the shale gas boom did a year or two sooner. Given the typical delays involved in (a) recognizing the need for a pipeline, (b) developing a plan and gaining financial commitment, (c) getting the pipeline permitted and securing the rights-of-way, and (d) actually building the pipeline, it isn’t surprising that pipeline infrastructure doesn’t yet match up to the changing patterns of production. Step (c) in that list is the big time sink, as both the politics of permitting and working with landowners has become more difficult. (Pro-pipeline conservatives ought to recognize that restraints on eminent domain are, from the point of view of the developer, part of the problem.)

The Douglass article then shifts into the politics of oil exports, noting that exports from the U.S. into Canada have been increasing lately “to the highest level in more than a decade,” at about 77 thousand bbl/day. Curiously, perhaps in an effort to dramatize the export, the article fails to explain that this is a trivial amount. No only does the U.S. produce nearly 6 million bbl/day, we also import about 2 million bbl/day from Canada. The 77 thousand bbl/day is the equivalent of returning to Canada about 3 percent of what is initially shipped south. (Data available from EIA.)

We have seen the political noise surrounding the potential exports of natural gas–the Obama administration has delayed a key report on the issue until after the election, in a move widely interpreted as helping him avoid immediate political fallout from any firm decision on the issue. There have also been scattered complaints about exports of refined petroleum products. Actual net export of U.S. crude would surely provoke additional political complaints.

The Keystone XL pipeline gets mentioned along the way in Douglass’s article, initially characterized by proponents as essential to development of new resources. But once the North American oil export prospects are discussed, the presentation shifts to the politics of the Keystone XL pipeline. In a quite clear distinction between the worldviews of commerce and politics, in politics the North American oil boom flips 180 degrees from the reason the pipe is needed into the reason the pipe is unnecessary.

“If the public realizes that [the Gulf Coast refiners] don’t need the Keystone XL … I think it would have a huge impact on support for the project,” said Anthony Swift, an attorney at the National Resources Defense Council, which has campaigned against the pipeline for years.

And not just environmentalist are arguing the boom makes the pipeline unnecessary. The article gives the last word to energy economist Philip Verleger Jr.:

Oil economist and consultant Philip Verleger Jr. said the Keystone XL will be a victim of that rapid change. Verleger is a visiting fellow at the Peterson Institute of International Economics whose opposition to the Keystone project has rankled the industry…

“The people who are saying we really need this [Keystone XL pipeline] don’t recognize that circumstances have changed,” said Verleger, who recently predicted that America will begin exporting more energy than it imports within the decade.

“The Keystone XL is going to be just like an Egyptian pyramid. Useless.”

There might be just a little bit of a slip embedded in the characterization of Verleger’s view. “Begin exporting more energy than it imports” is a phrasing that presumably incorporates coal exports into the equation, though coal is nowhere else mentioned in the article. I suspect Verleger’s views are more subtle than presented. Still, if he said the pipeline will be useless, that is a pretty clear statement.

[By the way, note that I'm not saying Douglass herself it claiming that the potential for eventual oil exports is reason to oppose the Keystone pipeline. Her sprawling article just takes notice that this line of argument is being raised.]

In Mill’s Manhattan Institute report the Keystone pipeline gets mentioned briefly, as an example of the current obstructionism that will hold back the potential economic boom that would come from truly forward looking policy. Not too surprisingly to regular readers, I’ve got to lean toward Mill’s view here.

We may or may not turn into oil exporters in a decade or two, I’m not a forecaster of such things, but it pretty clear it can’t happen if we return to a path of greater political management of energy resource flows. If Verleger thinks the pipeline will be useless, he shouldn’t invest in it and he should advise his clients not to invest in it. Other commercial interests clearly hold an opposing view, and they are willing to invest their money in the project.

If we rely mostly on the commercial worldview to direct energy resources, the pipeline probably gets built and we may well be on our way to cheaper energy and oil exports. If we instead give precedence to a political worldview to manage energy resource development and movement, energy becomes costlier and in short supply.

Politics has an appropriate role to play in addressing environmental issues, but we will all live happier, healthier, cleaner lives if we keep politics focused on solving environmental problems and let commerce direct which way energy resources flow.

“Please, sirs, may I have some more … subsidies for wind power?”

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Michael Giberson

From The Hill’s Energy & Environment Blog:

A group of military veterans pressed congressional Republicans on Thursday to renew a tax credit for the wind industry that their party’s standard-bearer, Mitt Romney, has vowed to end.

The veterans, who are all employed by the wind industry, secured meetings with staff for House Majority Leader Eric Cantor (R-Va.), House Ways and Means Committee Chairman…

The two elements of half-hearted policy substance mentioned in the article are both suspect: “jobs for veterans,” and “reduces dependence on foreign energy.”

Over the last decade the domestic oil and gas production industry added twice as many jobs as the 37,000 jobs the wind industry claims expiration of the PTC will threaten. The only “foreign energy” we import in any quantity is petroleum, excepting some power and natural gas from Canada, and the wind power subsidy has approximately nothing to do with how much petroleum we import.

On the other hand, increasing domestic oil and gas production actually is reducing “dependence on foreign energy,” including imports from OPEC members and other sources, and even including power and natural gas from Canada.

Using military vets to lobby for wind power tax breaks? I guess some K Street lobbying genius imagined using vets would help the industry get a bit of face time with Republican lawmakers who would otherwise rather meet with representatives of some other special interest group. Don’t our military veterans deserve better than to be made into poorly-informed lobbyists for wind energy?

What’s next, retired firefighters, grizzled ex-cops, harried emergency room nurses?

Why not just round up some starving orphans and have them come plead Congress, “Please, sirs, may I have some more … subsidies for wind power?”

Any reason to be worried about wind power industry layoffs?

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Michael Giberson

In an article titled “4 Reasons All Americans Should Be Worried About Wind Layoffs,” you’d think there would be at least one reason that people should be worried about wind industry layoffs.

Sadly, no.

Instead the author tells the reader: (1) wind power installations are largely in GOP-held congressional districts, (2) the U.S. is losing the “race” with China to build the most wind power, (3) fossil fuels receive tax breaks too, and (4)  natural gas prices are low.

The only substantive content in the short piece was a casual invoking of “the externalities of fossil fuel.” I’d encourage the writer to hold on to this sentence, toss the rest, and start again.

Are ‘outsiders’ more likely to be accused of price gouging?

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Michael Giberson

Are price gouging laws applied fairly?

This past week Tropical Storm/Hurricane Isaac lead to disaster declarations and the invocation of price gouging laws in several gulf states. Here are a few selected quotes from all four price-gouging related press releases issued last week by Mississippi Attorney General Jim Hood:

  • August 28: “Attorney General Jim Hood is today enforcing the state’s price gouging laws as Mississippi prepares for Hurricane Isaac.”
  • August 29: “Kuldip Singh, 51, of Natchez was arrested at his business in Roxie around 6:30 tonight by investigators with the Consumer Protection Division of the Attorney General’s Office. Singh is accused of charging over his usual profit margin at the Roxie Truck Stop, which he owns. ”
  • August 29: “Rajinder Singh, 50, of Madison, was arrested at his place of business in Jackson late today by investigators with the Consumer Protection Division of the Attorney General’s Office.  Singh is accused of price gouging during a disaster.”
  • August 31:

Two Vicksburg hotel operators have been arrested and charged with price gouging during a state of emergency, announced Attorney General Jim Hood today.

Investigators with the Mississippi Attorney General’s Office Consumer Protection Division, with the assistance of the Warren County Sheriff’s Office and the Vicksburg Police Department, arrested Devenora V. Patel, 56, and Hemel Ramesh Surati, 26, last night at their business, The Battlefield Inn in Vicksburg.

“The arrests were the result of tips from concerned citizens and a subsequent undercover investigation,” said Attorney General Jim Hood.

Two aspects of anti-price gouging laws raise concern that such laws will be enforced unevenly, to the detriment of minority groups. First, often the standards for a violation are somewhat vague. For example, laws use terms like “unreasonably excessive” without clarifying just when a price increase becomes too high, and merchants frequently can pass along some cost increases in higher prices while other cost increases are ignored. The flexibility involved in applying price gouging laws gives discretion to the state legal authorities involved in enforcing the laws, and such discretion is unlikely to be exercised in favor of minority groups.

Second, almost universally price gouging cases are initiated by consumer complaints and so depend upon a consumer’s initial feeling of having been taken advantage of. Given typical psychological biases that influence consumer fairness judgments, it is possible that essentially arbitrary factors affect which price increases become consumer complaints and therefore become subject to potential legal action.

Given these two factors, I think it is reasonable to expect that “out group” merchants, that is to say merchants who are of an obviously different ethic or racial background than the consumer, are much more likely to be subject to consumer price gouging complaints.

Now the mere fact that all four persons arrested for price gouging in Mississippi over the past week have names more typical of Indian heritage (Patel, Surati, and Singh twice) rather than names typical of deep roots in the South doesn’t prove anything. And I’m not aware of any systematic review of consumer price gouging complaints that considers merchant ethnicity or race that could provide a sturdier evidence on my hypothesis about bias. But I think the case is worth additional study.

In general I think price gouging laws are a bad idea, but if we have them they should not be enforced in ways that put a disproportionate burden on minority business owners.

NOTE: Much more price gouging commentary is available here at Knowledge Problem. Clink this link to see the list.